A legal battle has broken out in Oakland, California, over whether construction companies should be forced to pay for public art in building projects.

An alliance of firms in Oakland is suing the city over laws that came into effect in February forcing them to spend between 0.5% and 1% of any project’s budget on public art.

There are more than 200 such public art ordinances across the United States and construction bosses will be closely monitoring the outcome of the lawsuit. Artists in Oakland, meanwhile, are fearful that a victory for the firms will be a defeat for culture in a city which has seen an influx of artists in recent years, and damage its status.

The Building Industry Association of the Bay Area (BIA), a group that represents about 300 builders, contractors, suppliers and others within the Bay Area housing sector, claim the rules violate the first amendment and the fifth amendment protection against “uncompensated takings”.

“Public art adds value to our life,” visual and performance artist Johanna Poethig said, describing the lawsuit as a “backwards step”. She said: “Any sophisticated city has art and the amount spent is not a lot … and [art] makes people want to live there.”

The city of Oakland passed the ordinance on 9 December 2014 and it went into effect on 8 February, requiring all builders who obtain a construction permit to install public art within their projects or pay the city a fee for public art works on another public property.

For residential construction, the fee or public art adds 0.5% to the project, and 1% for a public project. The art must be “publicly accessible” and artists approved by the city must be employed for any such projects. The art could be on the side of a building.

In 1978, Chicago was the first such city to approve a percentage of new construction budgets to public art. That ordinance “stipulates that 1.33% of the cost of constructing or renovating municipal buildings and public spaces be devoted to original artwork on the premises”.

But BIA disagrees with the stipulation, calling the ordinance unconstitutional. “Commissioning more public art might be a laudable goal, but the responsibility to fund it should rest with city government and taxpayers as a whole, not with builders and the home buyers and renters who will have to pay more,” said Tony Francois, senior staff attorney at Pacific Legal Foundation, in a statement. PLF is representing BIA in their lawsuit. “Oakland is committing a broad-brush violation of the constitution by treating builders, as well as home purchasers and renters, as ATMs to fund the city council’s wishlist for public art projects.

BIA did not respond to Guardian requests for a statement on the lawsuit.

Previous cases suggest BIA faces a tough battle. A 2010 suit from the California Building Industry Association – BIA Bay Area is a local affiliate – was resolved in June when the state’s supreme court ruled in favor of the city of San Jose. Like that case, this legal battle could drag on for years.

Oakland’s mayor, Libby Schaaf, who was instrumental in passing the ordinance while she was a council member, is adamant that public art will make the city better and continue the city’s cultural drive.

“Ensuring that the built environment enhances our community in terms of both aesthetics and use is essential to any city’s vitality,” the mayor said in a statement. “This is particularly true for Oakland which has a deep and vibrant connection to the arts. In creating a public art requirement for large-scale development Oakland has done what communities throughout the region have done – without challenge.”

However, in the announcement from PFL on the federal lawsuit, BIA said that public art “has no reasonable connection to any impact from their projects”.

The American Planning Association, though, says there is evidence to show public art creates a more vibrant city life and increases property value.

BIA’s executive director, Bob Glover, went a step further in his assessment of the ordinance, saying the region should “decide if we are serious about increasing housing opportunities in the Bay Area for working households in a responsible and sustainable way”. He claims that the costs of adding public art to their construction are too high. “We cannot do that if local governments continue to pile the cost of providing every conceivable social program on new housing development. It is simply irresponsible to bemoan the lack of new housing affordable to working households while refusing to make the tough decision to say ‘no’ to increasing the cost of new housing.”

Artists like Poethig, who is currently working on a project with East Bay AC Transit system, hope that the lawsuit will be struck down by a judge and public art will remain a vital part of Oakland life.

“All over the country and world, art attracts people to towns. People want to see art and the vibrancy of culture in cities,” Poethig continued, saying that while BIA wants to end public art, “we are inundated by advertising, so if they win the lawsuit it is like telling people the only value is commercial.”

This article was amended on 26 May 2016 as a result of a fact-checking investigation. Two quotes, one from Oakland mayor Libby Schaaf and one from Tony Francois of the Pacific Legal Foundation, were clarified to reflect that they were taken from written statements issued to the Guardian.